Kiwi weakens with business confidence

The New Zealand dollar has weakened after a survey showed business confidence fell for a third month, while Fonterra confirmed expectations by cutting its milk payout forecasts for this season and the next.

The kiwi was trading at 85.36 US cents at 5pm in Wellington, from 85.38 cents at the start of the day and down from 85.59 cents late on Tuesday.

The trade-weighted index slipped to 79.70 from 79.87 on Tuesday.

New Zealand business confidence extended its slide from a record high to a third month, in the face of rising interest rates, declining dairy prices and the persistently high kiwi dollar.

A net 53.5 per cent of firms are optimistic about general business conditions this month, according to the ANZ Business Outlook survey, down from a 20-year high of 70.8 per cent in February.

Early in the day, Fonterra gave a preliminary forecast payout for the 2015 season of $7 a kilogram of milk solids, after trimming this season's forecast payout to $8.40 per kgMS.

"It's that shift in expectations that markets are reacting to," said Robert Rennie, chief currency strategist at Westpac Banking Corp.

"Business sentiment dipping for a third straight month and earlier on, the Fonterra payout, while high this year, clearly next season we're being given a very clear warning the payout is set to drop. The kiwi has under-performed on the basis of those two releases."

With the next Reserve Bank monetary policy statement scheduled for June 12, there is heightened interest in New Zealand economic indicators, as traders mull the likely track for increases in the official cash rate, Mr Rennie said.

The kiwi fell to 92.14 Australian cents from 92.41 cents at the start of the day and from 92.39 cents on Tuesday. It also fell to 87 yen from 87.28 yen on Tuesday and was little changed at 62.62 euro cents.